Social Security starts its downward slide this year. Because of the recession and 10 percent unemployment, payroll tax receipts will fall below pensions paid out for the first time.
Today’s retirees need not worry. The imbalance will not affect the program until 2037, or thereabouts. Because income has exceeded expenses for decades, the Social Security trust fund has a balance of about $2.5 trillion invested in Treasury bills. The interest on those notes added to payroll tax receipts will keep pension checks flowing for a few years.
As more and more of the Baby Boom generation retire, the trust fund principal will be tapped. Without increased taxes or changes in the benefit structure, the program will run out of money in about 27 years.
It is important to realize that the Treasury bills in the Trust Fund represent an obligation to the federal government rath-er than cash.
As the surpluses were created Congress spent the money and issued the Treasury bills that were deposited in the Social Security Trust Fund. When those T-bills must be cashed to meet pension needs, the money will have to come from the federal general fund. Likewise with the interest to be paid on the bills.
Taxes will have to be raised to create that revenue or the money will have to be borrowed, raising the national debt and the nation’s interest bill. As a consequence, keeping Social Security benefits at the level retirees have enjoyed will become more and more difficult politically the longer the program operates in the red.
Social Security can be kept solvent with a few logical changes. The retirement age should be increased to 70 to recognize the vast changes in the nature of work and the increased longevity of our people that have taken place over the last 50 years.
Revenue into the system should be increased by raising the amount of income taxed. If all in-come earned from work were subject to the Social Security tax, the program would never come under threat. But increasing the limit to $250,000 a year would be sufficient to keep it solvent for de-cades longer.
It also would be appropriate to reduce benefits to the wealthy rather than consider across-the-board pension reductions.
All of these changes would be less painful and disruptive if done in increments over several years. The sooner the program is restructured, the better.
PRESIDENT GEORGE W. Bush recognized this challenge and attempted to meet it by creating private retirement accounts invested in stocks and other market investments. Congress rejected that approach and President Bush made no further effort to reform the system during his two terms. But the problem didn’t go away, it only drew closer.
The math is uncomplicated and can’t be questioned. Social Security’s income must be in-creased, benefits must be restructured, or pension checks will be slashed to all retirees by 25 percent or more by the time today’s middle-agers reach retirement.
Let’s don’t wait that long to fix it.
— Emerson Lynn, jr.
